VC Perspectives from a Former Entrepreneur – Jeff Bussgang

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Monthly Archives: September 2011

I'm pleased to announce that my book, Mastering the VC Game, is now available in paperback, complete with a new introduction and a few updates. Amazon has priced it at $10.88 for Prime customers. Frankly, I'd prefer to give it away for free as making money off the book isn't really my goal. The folks at Penguin have a business to run, though, so books still cost money. That said, I was able to convince them to let me give away the first 40 pages for free – so download it here or at the book website at www.jeffbussgang.com to get a taste.

Since the publication of Mastering the VC Game in 2010, I have received wonderful feedback from the entrepreneurial community. In fact, I have been blown away by the response from such a diverse population of entrepreneurs and would-be entrepreneurs around the world. One twenty-something entrepreneur working at a non-profit in Australia wrote me:

“Thank you for writing this book. It was a captivating read that gave me the basics of how the industry looks. I loved it. My only problem was feeling inspired to action, which made me put the book down to send emails to friends, and look up companies, which was a great problem to have.”

Inspiring entrepreneurs into action was my original goal for the book. The need for entrepreneurship is greater than ever. Policy makers and business leaders have both come to recognize that the capacity of human beings to innovate is our best hope for addressing and ultimately solving society’s thorniest problems. It has never been more critical that we brew up that magic elixir that comes of mixing entrepreneurs, who are the source of innovation, with investors, who are the source of capital to fuel that innovation.

I wrote Mastering the VC Game to contribute in some small way to this phenomenon and inspire entrepreneurs around the world to arm themselves with the knowledge, skills, and tools they need to take action and to succeed in their endeavors. When entrepreneurs and investors align and work in harmony, the long odds for start-up success are greatly improved and real magic can happen – creating that next Google, Facebook, or Twitter. Let me know what you think!

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Like many members of the start-up ecosystem, I was excited to watch the Bloomberg TV show on Techstars NY last night. The opportunity to see our little subculture of whacky characters and idiosyncrasies playing out on television was so alluring that it was worth foregoing my usual nightly email binge.

Yet, when the show was over, I was strangely disappointed. I had that same feeling you get when you eat a bag of potato chips, which taste good going down, but then feels unfulfilling and unappealing after the last chip is gone. In short, I think the show was a huge wasted opportunity.

First, I should say that I’m a huge fan and supporter of Techstars. My partners and I are personal financial investors in Techstars Boston and we funded one of the first Techstars companies (oneforty) and have served as advisors to countless others in NYC and Boston. Finally, I am a huge fan of David Tisch, Katie Rae and the other Techstars managing directors. What they have created from nothing a few years ago, with the backing and support of Brad Feld and David Cohen, is nothing short of remarkable.

OK, caveats aside, here’s what I didn’t like about the show: the tone was all wrong. The edgy graphics, music and camera shots tried to bring a crass, reality TV feel to a serious and sophisticated business. The producers apparently wanted to create something akin to “the Bachelor metes The Apprentice” and, in doing, cheapened the whole endeavor. Get rich quick, kids, was the message, complete with hip sound track, sound bites and quirky camera angles.

I would submit that’s not the point of entrepreneurship or, for that matter, Techstars. I would have much preferred to see a more sophisticated show that brought out the “change the world” passions of the founders and provided a more nuanced view of the ups and downs of start-up life. I wanted to see more big picture thinking, for example an explanation about the game-changing (and, in many cases, life changing) impact start-ups are having in our society, transforming industries and households up and down the economic stack.

I’m not suggesting Bloomberg should try to emulate their own Charlie Rose, and risk putting the audience to sleep, but at least channel a bit of Jon Stewart (who, Bill Moyers recently put, is brilliant at taking “a critical view of the news and marinating it in humor”). I would have much preferred to see the producers treat the audience like adults, able to digest serious issues and trade off decisions that the founders were struggling with, rather than target hipsters that are looking for dramatic founder break-ups because they’re too busy to watch mid-day soaps.

Perhaps the start-up community needs a Jon Stewart-like figure to act as our guide through the Techstars process – more of an shrewd yet entertaining narrator than an MTV host. Some of the quick-hit interviewees on the pilot show would be great candidates for this (e.g., Fred Wilson, Roger Ehrenberg, Brad Feld). Start-up life has plenty of drama that doesn’t need fabrication or exaggeration. Hard problems are being faced by each team professionally and personally. The characters in most start-up dramas are fascinating people, with compelling stories – I know many of the folks depicted in the show and they are deserving of more than surface treatment, but rather real character development and dimensionality.

Sure, I enjoyed seeing so many friends and familiar faces on screen and seeing “my world” exposed to a broader audience. But, objectively, I thought the actual show kind of stunk. That said, I’ll be tuning in to the second episode. And hoping for the best.

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There is an old parable about the concept of commitment when it comes to breakfast. The story goes that when looking at a plate of the traditional fare of ham and eggs, it's obvious that the chicken is an interested party, but the pig is truly committed.

When I tell this story to entrepreneurs, my point is usually to contrast the approach VCs have to start-ups as compared to entrepreneurs. The VC is an interested party, but at the end of the day, if their start-ups live or die, they typically still have their job, their office and their portfolio of other investments. The entrepreneur, on the other hand, is the pig – truly committed to the outcome, with no fallback.

But lately I've been thinking about the parable of the pig and the chicken in the context of the characteristics that make a great entrepreneur – and the kind of entrepreneur that we VCs in general, and my firm Flybridge Capital in particular, like to back. In short, we like to back pigs – entrepreneurs who are truly and completely committed to the outcome of their venture, have a lot of stake, and no fallback.

How do we discern the difference between the two entrepreneurial archetypes? It's usually relatively easy, but sometimes subtle. Here are a few of the top characteristics we see in entrepreneurs who appear to be exhibiting behavior that suggests they're more like "chickens" when it comes to their start-up:

1) Prefer to wait to start their venture only after they receive funding ("We are ready to go, as soon as you give us your money." …um, does that mean you won't start the company if I don't give you my money?).

2) Don't quit their day jobs before receiving funding. ("This has been a side project for a year, and I can't wait to focus on it full-time" … um, if you can't wait – why are you waiting?)

3) Don't physically move themselves or their teammates to be in the same geography when starting their venture (think Eduardo Severin in the Social Network spending his summer in NYC).

4) Prefer to play a hands-off chairman role or look to quickly hire a COO/president in the early days rather than operate as the hands-on CEO/president. (I'll leave out the numerous examples to protect the innocent, but as a rule of thumb, companies with fewer than 40 employees don't typically need a COO).

5) Are unwilling to fully leverage their own personal and professional networks to drive recruiting, fundraising and business development.

On the other hand, the top five characteristics we see in "pig" entrepreneurs include:

1) Commit to the new company everything they have – even if that means moving their families, quitting their jobs, or even dropping our of their schools (as much as I don't want to condone or encourage this!).

2) Put themselves "out there" publicly and visibly with the industry, their relationships, family and friends. If the company is a failure, it will not be a quiet one.

3) Have not yet achieved a mega-success already and/or yet achieved wealth beyond the point of needing to work again. (I remember my mentor and boss at Open Market, CEO Gary Eichhorn, congratulating me when I became a first-time homeowner in the mid-1990s and observed: "I hope you got a large mortgage so that you are locked in and highly motivated to create wealth!").

4) Participate in a minimal set of outside interests and hobbies that aren't directly related to their business. Starting a company is a consuming, obsessive, 7×24 endeavor. Raising a family and remaining healthy is enough of a battle. When we see entrepreneurs with long lists of hobbies and outside interests, it's a red flag. One of my partners went so far as to look up the number of times an entrepreneur played golf one summer (which apparently is public information somehow, although I'm not a golfer so still don't know how he figured this out) as a barometer for how hard they were applying themselves to their new venture.

5) There exists a rare breed of entrepreneurs that have already had mega-success are so special and driven that they remain obviously hungry and scrappy. For these entrepreneurs, the key is to watch and see if they're still as hands on as they ever were (e.g., obsessed with the product, knee-deep in the financial model, out in front of the organization in selling). Again, these entrepreneurs are very special.

So what are you – the chicken or the pig? Investors clearly prefer one model over the other, not just in the founder, but in the entire team. As a result, as you are assembling your start-up team, be careful not to hire chickens. In the eyes of prospective investors, you may find it's even less kosher than hiring pigs.